Now for the fun stuff! We will start calculating all the pages you've been working on, this will form a summary of your Networth and your Yearly/Monthly Income and Expense Summary.
A positive result is great and we can work on giving that positive amount a job. Perhaps saving, paying off debt or investing.
If you have a negative result, I know this may seem disheartening, but it's only a number and a number we can work with! It's ALWAYS good to know your numbers. The good, the bad and the ugly.
Income vs Expenses Summary
Go back to your expense pages and double-check the items and amounts are still correct and that you have amended anything you were able to reduce or remove in STEP 5. Once you have checked this, TOTAL each page.
Pages you would have are:
Yearly (add the totals of your 'Adhoc expenses' as a yearly amount)
Examples of ours below
Now that you have a total on each page, we are going to calculate the numbers and convert them all into your payment cycle (when you get paid). If one person gets paid monthly and the other one gets paid weekly, calculate all the pages by month. It will be easier for the total tallies.
I also calculate on each page the Yearly amount as it's good to see a full year's picture. The Monthly/Weekly picture will be the working value we will use in STEP 8 so you'll KNOW YOUR NUMBERS.
On each example page above I show how I convert to yearly and also to monthly. See how you go with yours.
When the above is done, we create a NEW page with the following:-
Total Yearly Income/Expenses as per the below example. With Income first and totalled. Then your expenses by the different periods and totalled. The final part is Income minus Expenses and this gives you your balance
Total Monthly or Weekly Income/Expenses as per below example and do the same as above.
NOW we have a starting point. A positive or a negative number will be reviewed next week in STEP 8.
Know Your Networth
A summary of your Networth is a great tool and a good practice to get into at least once a year. I do mine quarterly.
Below is a simple approach to work out your Networth. On a new page write the below. Some of these numbers (debts) are from STEP 3 so you should have them already listed on those pages.
A Assets - write up all your assets
Home - current value $
Investment property value $
Super balance (from step 6) $
Shares, Bonds $
Saving accounts $
TOTAL ASSETS* $ _________
* I don't include cars, bikes or household furniture or technologies. That is my preference, you can if you wish. Mainly think about items that if you had to sell them, what would be their market value?
B Debts / Liabilities - from Step 3 loans/debts pages
Home loan $
Investment loan $
Consumer loans (car, furniture) $
Credit card balance/Afterpay $
TOTAL LIABILITIES $ ________
Assets - Debt/Liabilities = $ ________
Examples of ours below
What these pages give us is a value we can work with. It helps you understand in a nutshell your living expenses and also what your current real assets are.
What gets measured, gets managed. - Peter Drucker
This process helps with your focus and allows you to know your numbers back to front. I truly believe it builds confidence. Positive or negative, it gives you a feeling of control, a focus and a target. You have got this! It's YOUR money! You should be able to rattle off your monthly/weekly expenses and know what the ballpark figures are.
Next week, we will dive into how we manage these numbers from week to week. There are many budget systems that can be your guide. I will be sharing the one I use and have used for a fair few years now. It's not always perfect, however, I KNOW MY NUMBERS and when emergencies occur in our life, I know what I can massage with minimal distress (and let me tell you some of the things that have happened to me could really do your head in), however, I have kept quite sane because I know how to go back to the basics. I go to the foundations and work through them and can come out of them still intact (mentally, emotionally and consumer debt-free).
You'll need this week's pages done for next week. Stay tuned for Step 8!
See you then.
Further reading from previous blog posts, if you wish.